Uber Technologies Inc., which rival Lyft Inc., has no way to profitability unless it does one of two things: Delete drivers or raise rates.
Expect the giant giants to try to do both, now as Uber
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are public companies that must face Wall Street pressure every three months. But the assessment of how long it may be before autonomous robot stocks are widespread on our streets is much more likely to rise, and can be largely obscured by the companies.
Uber, which priced the shares on Thursday night and starts trading Friday morning, is the most sought after Silicon Valley IPO since Facebook. And while many investors have been impressed by the sheer scale of their business compared to the size of their competitors Lyft ̵[ads1]1; which is mainly in the US and yet not so diversified – Uber's losses are just as impressive. In 2018, Uber reported a $ 3 billion operating loss of $ 11.3 billion in revenue, and the accumulated deficit reached nearly $ 8 billion at the end of last year. Uber said in its "roadshow" presentation that it expects Ebitda losses to increase in 2019 as it continues to invest.
Both Uber and Lyft have been subsidized over the past few decades and seven years by venture capitalists and other private investors who have been willing to invest in rider hailing, and whose funding allowed experiments to grow at low prices. But as public corporations, it ends the stage of their lives now.
Also read: Uber IPO: 5 Things you need to know about potentially the largest IPO this year
"Now they are both in the" let's capture market share "mode, and the bottom line is less important than catching income and market share, but when you become a public company and you have to free up your revenue every quarter, people will monitor your earnings very carefully, says Reena Aggarwal, Professor of Economics and Director of Financial Markets and Politics at Georgetown's McDonough School of Business. "There will be a lot of focus on it. They will have to raise prices because of the pressure. "
Just one example of how this has played out in technology can be seen by watching streaming media companies like Netflix Inc.
While Netflix was in the DVD rental business, it offered its customers the opportunity to stream video for free, along with their DVD subscriptions, as an experiment. As streaming began to grab, Netflix began to charge for it, first with its weak Qwikster efforts, but then separating the streaming business from DVD rentals.
One of the biggest presses is Uber's relationship with his drivers, who went on strike worldwide on Wednesday to protest against the company's business model ahead of its IPO. The drivers claim that Uber's business model enriches the company's executives at the expense of their low-powered drivers, entrepreneurs, and not full-time employees with benefits (this question is at the heart of several lawsuits seeking to get drivers classified as employees). Uber offers incentives to drivers to join, further damage the bottom line and rider discounts. The company's S1 said that it increased purchasing campaigns and campaigns in the first quarter to maintain its competitive market position, noting that it expects driver conditions to deteriorate.
"When we aim to reduce drivers' incentives to improve our financial performance, we expect the driver's dissatisfaction will generally increase, the company said. It also noted that as it continues to invest in self-propelled cars, it can lead to discontent on the driver over time, as it may reduce the need for drivers. "" Making money by pushing down costs will create steady additional issues, with high turnover rates with drivers and challenging the new drivers to expand, says Larry Mishel, prominent fellow at the Economic Policy Institute in Washington. "There are major contradictions in the heart of the business model." Last year, Mishel worked on a survey of Uber drivers and concluded that their W-2 equivalent hourly rate is less than 90%. by American workers earning. "Our results indicate that the Uber drivers earn low wages and compensation, and the total hours and offsets in the concentration recur a very small percentage of the total hours and the compensation in the economy, Mishel & # 39; s study says.
Uber has not provided any predictions as to when it may be profitable, but some investors expect profitability when it comes to fleets of self-propelled vehicles, which will eliminate some cost of driving drivers. But self-driving cars are still in the early stages, and even when they are completely self-propelled, Uber will still have the technology and possibly the cars themselves.
"The idea that they can wait for autonomous vehicles [before they become profitable] is stupid, we are many years away from it. It is not clear that Wall Street and investors will have to wait for many years to make them profitable. Mishel.
EquityZen, a platform for employees to sell their private shares, has targeted 2023 for Uber to achieve profitability, subject to a total gross commission rate of $ 145.6 billion, a revenue of 26, $ 4 billion and get the cost and expense at a turnover rate of around $ 26.2 billion. Uber's revenue is the biggest cost item, as EquityZen analysts don't expect to slow much as it continues to invest in growing services like Uber Freight and new mobility products
"We expect Uber to operate at a loss for at least the next few years, but believe investors will be more patient with Uber's investments, as the leadership position will contribute to better long-term competition. Posting, Wedbush Securities analysts Ygal Arounian and Dan Ives, in a note last week, began to cover Uber.
This week, Lyft's first quarter results removed the revenue revenue from their finances, a step that investors who were on their way to the company's road show had been notified. Nevertheless, the move removes the necessary data and can make price increases more difficult to spot. In his roadshow video, Uber did not say whether it will continue to deliver the data, but Ives believes the company will.
"Orders and pricing are key to investors, and we continue to believe that Uber will be transparent in calculations and growth numbers," Ives said in an email Thursday. "Lift dropped the ball by not giving these calculations, and Uber would learn from these mistakes."
Both companies have been in a tough place. Their business models are far from profitable and it's just a safe way to get there. But rising consumer prices can have a real impact on the volume of trips, and make them less competitive against taxis in urban markets. Whatever the IPO is a tough sale for investors, with a long and uncertain way of profitability.
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